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Bimb Research Highlights

Author: kltrader   |   Latest post: Wed, 6 Nov 2019, 4:40 PM

 

GHL System - Paying its dues for the long run

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  • We continue to like GHL for the strong prospects of its TPA business benefiting from governments’ push for cashless payments. With Paysys, this further emboldens its prospect with access to over 100,000 terminals.
  • We expect its merchant money lending activity in Malaysia and Thailand would further enhance operating leverage on top of the growing TPA business. 
  • Nonetheless, near term earnings risks are inherent amidst intense competition amongst banks while some of the merchants acquired are still in its gestation period. We pare down 2019-21F earnings estimates by 3-30% on higher net opex assumptions.
  • Maintain BUY at lower RM1.80 TP (from RM2.00), implying 45x 2019F PE and 37x for 2020F before easing to 29x by 2021F. We believe this is fair given the attractive long-term growth potential it offers.
  • Playing the long game
  • The TPA business benefits from the support of governments across the region towards a cashless economy. Additionally, the increasing internet penetration and smartphone adoption has provided the necessary platform to drive TPA’s growth. The acquisition of Paysys in Apr 2018 further emboldens the prospects of GHL’s TPA business as it can potentially access new merchants via Paysys’ over 100,000 terminals across Malaysia.
  • Merchant money lending – a potential business In Aug 2019, GHL received approval to provide money lending services in Malaysia and Thailand. While still early days, GHL plans to extend the services to existing merchants within its TPA network. This should enhance GHL’s revenue per merchant and further entrench its market presence. GHL currently has 87,000 point-of-sales (POS) across the two countries.
     
  • Near-term inherent risks
  • Despite what we see as GHL’s promising long term prospects, near term risks are inherent. Revenue growth has sustained at 12% over 2015-2018 but gross margins are dwindling owing to competition within the banks and e-wallets as well as some of its POS still in its gestation period. We cut 2019-2021F earnings by 3-30% to reflect the higher net opex assumptions.
     
  • Maintain BUY at lower TP of RM1.80 (from RM2.00) Reiterate BUY with a lower DCF-derived TP of RM1.80 (from RM2.00) (WACC: 8%, terminal growth rate: 3%), implying 2019/2020F PE of 45x/37x respectively. We believe this is fair owing to the attractive growth potential its TPA business provide in the long run and the potential structural growth from complementary services.

Source: BIMB Securities Research - 11 Oct 2019

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